The increase from the current level of 17.5 per cent caused uproar in the House of Commons when it was announced by the Chancellor, forcing the deputy speaker to intervene to quieten down the protests from the Labour benches.

It was also quickly denounced by many businesses, charities and consumer groups, but Mr Osborne said: "The years of debt and spending make this unavoidable."

The increase comes into force at the start of next year, on January 4, giving some breathing space to retailers to prepare the price changes and ensuring their crucial Christmas trading is not affected.

The measure will generate over £13.4 billion a year of extra revenues for the Treasury by the 2014 to 2015 tax year. "That is £13 billion we don’t have to find from extra spending cuts or income tax rises," Mr Osborne added.

The policy is by far and away the largest revenue generator announced in the budget, eclipsing the money raised from either introducing a bank levy or capping housing benefits.

Grant Thornton, using the Treasury's own forecasts, calculated that the £13 billion extra equated to an extra tax bill of £517 for each of the 26 million households in Britain. This is even higher than the figure calculated last week by Centre for Economics and Business Research on behalf of Kelkoo, the shopping website, which reckoned that it will add £425 a year to families' shopping bills.

The rise in VAT will push up the price of many basic household items, notably petrol, alcohol, clothing, toiletries, furniture and electrical items.

It will push up the average price of petrol from £1.18 a litre to £1.21, adding £1.50 to the cost of filling up the average family car. The average pint of beer will rise above £3 for the first time and it will add £13 to the cost of an iPhone, which currently costs up to £630.

Deloitte, the accountancy firm, calculates that the average worker, earning £24,000 will pay an extra £183 a year as a result of the VAT rise. Charities said it was unfair because, unlike businesses, they can not claim back VAT. It has been calculated that charities pay £150 million a year in VAT.

It could also push up the rate of inflation, many fear, though the Treasury insisted the cost of living would fall next year.

Retail experts said the rise was "dangerously counterproductive", while some economists pointed out it was one of the easiest and most efficient ways to raise extra revenues.

KPMG, the accountancy firm, warned that many retailers "teetering on the edge" following from the recession could be "pushed over the edge" by the VAT rise.

Andrew Burrell, Research Partner at King Sturge, a property consultant said: "The killer for retailers and consumers alike is clearly going to be the VAT hike. This was too big a temptation for the coalition to resist, despite the fact that consumer confidence remains extremely fragile and a sudden hike in prices could destabilise the recovery."

“With inflation already running at around 5 per cent, earnings growth weak and public sector employment set to fall, household finances, which are already under severe pressure, will be dealt a further blow. Spare capacity for mortgage payments will also be squeezed.”

CEBR calculated that the poorest households pay disproportionately a higher amount of VAT. The bottom quarter of earners pay 12 per cent of their disposable income in VAT, compared with the top quarter of earners who pay just 6 per cent.

Matthew Sykes, chief executive of the anti-poverty charity Elizabeth Finn Care, said: “From its lowest point at the end of last year, VAT will have risen by a third. This latest measure alone is a rise of over 14 per cent. That is going to leave the poorest struggling to pay for many of the basics that the rest take for granted. Sadly, VAT is a disproportionate tax – the less you earn, the more you will feel the pinch when the rate is increased.”

David Buick, at City firm BGC Partners, however pointed out that the richest consumers still paid the most, if not proportionately, then certainly in actual money. "This tax could raise an extra £13 billion in a year and it is not as socially debilitating as Labour would have us believe. After all, the wealthier will spend the most and buy the most goods."

The Treasury has also tweaked the rate of VAT that people pay on some insurance policies from 5 per cent to 6 per cent, which will raise £455 million a year.